Decentralized Crime: Fraud, Cybercrime and Legal Enforcement
DOI:
https://doi.org/10.70009/jels.2025.2.2.1Keywords:
Decentralized Finance, Financial Crime, Blockchain Forensics, Cryptocurrency RegulationAbstract
The rapid rise of Decentralized Finance (DeFi) and anonymity-focused cryptocurrencies has transformed financial systems by eliminating intermediaries and enabling peer-to-peer transactions. While these innovations offer numerous benefits, they also present unprecedented challenges for crime prevention and regulatory enforcement. This paper examines how DeFi and privacy-enhanced cryptocurrencies, such as Monero and Zcash, facilitate financial crimes, including money laundering, ransomware attacks, and fraud. By applying criminological theories—Strain Theory, Routine Activity Theory, and Rational Choice Theory—this study reinterprets traditional crime models in the context of blockchain-based financial ecosystems.
Law enforcement agencies face significant hurdles in investigating and prosecuting crypto-enabled financial crimes due to jurisdictional limitations, privacy-enhancing technologies, and decentralized governance. This paper explores how blockchain analytics, artificial intelligence-driven risk assessment, and cross-border regulatory collaborations, such as the Financial Action Task Force (FATF) Travel Rule and the EU’s Markets in Crypto-Assets (MiCA) regulation, are being developed to counter these emerging threats. Additionally, it assesses the institutional limitations of law enforcement agencies, the role of DeFi governance communities in mitigating financial crimes, and the potential impact of central bank digital currencies (CBDCs) on reducing illicit transactions.
To enhance regulatory effectiveness, this study recommends strengthening international cooperation, improving forensic capabilities for tracking illicit blockchain transactions, and implementing ethical frameworks that balance financial privacy with security. The findings contribute to criminology, financial regulation, and cybersecurity by offering insights into evolving digital crimes and proposing solutions to mitigate their risks. Future research should explore the role of artificial intelligence in DeFi crime detection and the impact of regulatory advancements on illicit financial flows in decentralized ecosystems.
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